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Limited Liability (LLC) Formation

Filing the Articles of Organization is the first step to forming an LLC. Many people make the mistake of stopping here, but there are other steps that should be taken. Second, you will want to determine how you wish to be taxed, and file documents with the IRS, accordingly. The third step, which is possibly the most important, is to create an operating agreement. Even though operating agreements need not be filed with the LLC filing office and are rarely required by state law, it is essential that you create one. In an LLC operating agreement, you set out rules for the ownership and operation of the business (much like a partnership agreement or corporate bylaws). A typical operating agreement includes:

  • the members’ percentage interests in the business
  • the members’ rights and responsibilities
  • the members’ voting power
  • how profits and losses will be allocated
  • how the LLC will be managed
  • rules for holding meetings and taking votes, and
  • “buy-sell” provisions, which determine what happens if a member wants to sell his or her interest, dies, or becomes disabled.

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